Response to Megan McArdle: Why the Business Roundtable Decision is Good for Shareholders Too




I read with great interest the Washington Post article by Megan McArdle in which she tries to argue against Stakeholder capitalism. I was hoping to see something new, as I am always eager to expand my knowledge on the subject of capitalism. Unfortunately, Ms. McArdle’s argument was merely a repeat of the same tired story told by Wall Street loyalists for the past 50 years.


At the heart of her argument was the misguided statement, and I quote:


So if “stakeholder capitalism” means anything, it must mean companies doing things that make shareholders at least somewhat worse off.”


This statement shows an utter disregard of the gathering body of evidence that shows quite clearly that companies embracing the tenets of Stakeholder capitalism actually provide better returns to their shareholders, not worse.


In support of my position I would point readers who are interested in getting to the truth of this matter to the recent work done by Boston Consulting Group in which they found a direct correlation between high scores on stakeholder related issues (they use the term TSI) and better financial performance.


Readers of this report will learn that stakeholder focused companies enjoy higher valuation multiples, higher gross margins and higher profits than competitors with a more traditional shareholder focus.


I would further point to the work of Dr. Raj Sisodia, FW Olin Distinguished Professor of Global Business, Babson College, and his colleagues, in the second edition of their book “Firms of Endearment”. In his book Dr. Sisodia provides statistical data and ample evidence showing quite clearly that, over the longer term, stakeholder focused companies consistently and significantly provide higher returns to their shareholders than companies operating with the outdated Shareholder Primacy mindset. In fact, in their study, which included 28 major corporations, stakeholder focused companies outperformed the S&P 500 by a factor of 14x over the fifteen-year period from 1998-2013. That certainly doesn’t sound like shareholders being worse off to me!


As a former public company CEO who was never exposed to the concept of Stakeholder capitalism, I can clearly see, in retrospect, how I could have created so much more wealth for my shareholders and more value for my other stakeholders if I hadn’t been so rigidly attached to measuring my company’s performance in 90 day increments. The current system driving the behavior of public company directors, officers and particularly CEO’s needs to change.


The SEC’s recent approval of the Long-Term Stock Exchange is a good start. Once it is up and running, the Long-Term Stock Exchange will provide a home for business owners and leaders who choose to access public capital markets while remaining committed to providing superior returns to their shareholders and doing right by their other stakeholders. It no longer needs to be one or the other. Public company investors can still do very well while the companies they invest in do good in the world!


I welcome all respectful ideas, debate, and feedback in the comments below.


This blog post was contributed by David J. Ferran, CEO of Torrey Project

© 2020 Torrey Project.

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